RBA: Housing bubble won't pop yet

RBA Governor Glenn Stevens has said a housing market crash is not unlikely, however the “bubble is taking a long time to pop.” He made the assertions in his speech yesterday at the Anika Foundation’s annual lunch, in what was a cautiously optimistic assessment of Australia’s economic ...

RBA Governor Glenn Stevens has said a housing market crash is not unlikely, however the “bubble is taking a long time to pop.”

He made the assertions in his speech yesterday at the Anika Foundation’s annual lunch, in what was a cautiously optimistic assessment of Australia’s economic prospects.

For brokers, his vision of a steady future housing market, underpinned by low prices, low interest rates and good income growth, should be welcome news.

“We should never say a crash couldn't happen here, and the Reserve Bank continues to monitor property markets and the performance of mortgages quite closely, as we have for many years.

“But it has to be said that the housing market bubble, if that's what it is, seems to be taking quite a long time to pop – if that's what it is going to do. The ingredients we would look for as signalling an imminent crash seem, if anything, less in evidence now than five years ago,” he said.

He did however focus on a pattern seen internationally, of increased dwelling prices preceding a severe crash.

“Australia saw a large run up in dwelling prices and household borrowing until a few years ago. Some other countries that saw this subsequently suffered painful corrections and deep recessions, associated with very stressed banking systems,” he said.

He said a weak construction market, and pressure on the balance sheets of lenders, were the two main consequences of a potential crash – however it was still an unlikely outcome for Australia.

“The results [of numerous studies] always show that even with substantial falls in dwelling prices, much higher unemployment and associated higher levels of defaults, key financial institutions remain well and truly solvent,” he said.